My father was a company man in a world where company men just aren’t that common anymore. He worked for more than four decades as a materials engineer with a leading aerospace company … and even though he’s technically “retired,” he still sneaks in some work from time to time.

I’ve always been proud of his engineering work. The problem these days, though, is that America seems to excel much more in “financial engineering” than any other engineering field.

Just look at the biggest corporate news of the day: Technology giant Hewlett-Packard (HPQ, Weiss Ratings: B) said it’s going to split its businesses into two separate publicly traded entities. One will include HP’s printer and PC business. The other will focus on the corporate, “enterprise” computing businesses, including sales of data servers and networking gear.

HP is far from alone. Online auction firm eBay (EBAY, Weiss Ratings: C) recently said it will spin out its PayPal payments business. The idea is that the individual business divisions will achieve a higher market valuation than they would if they stayed under the same corporate umbrella.

Maybe I’m old fashioned. But when you choose to cut a four-slice pizza into eight smaller ones, you still have the same amount of pizza, right? It doesn’t taste any different either, does it?

Frankly, it seems the only reason these types of deals are being done is because they’re the “flavor of the month” on Wall Street — something investors are temporarily enamored with. Then again, I’m not a highly paid Wall Street investment banker who needs to make payments on his Hamptons beach house.

Another story from Bloomberg shows that financial engineering in the form of stock buybacks keeps going strong, too! The companies in the S&P 500 have collectively announced plans to buy back stock and pay out dividends to the tune of $914 billion. That’s a whopping 95 percent of all the earnings they’ve generated.

Companies are now spending more than 30 percent of their cash flow on share buybacks. That’s roughly double the amount they spent 12 years ago. During that same time, they slashed capital spending to just 40 percent of cash flow from 50 percent.

About 95% of all profit earned by companies in the S&P 500 is being shoveled to shareholders.

If you’re a shareholder, that’s good news — at least for the short term. Buying back shares boosts earnings per share. Shrinking the public float of a company also helps support the price of the other shares still in the hands of investors.

But what does it say about the long-term vision of executives if they can’t find anything better to invest in than their own shares? Shouldn’t they be spending money on new factories to boost production and profits the “old fashioned” way? Shouldn’t they be paying their workers more so the economic recovery broadens out? And shouldn’t they plow money into research and development to find the next great American product?

It’d be nice. But the numbers show that just isn’t happening.

“Maybe we need tax policies aimed at dividend payouts and buybacks.”

I don’t know how we fix this problem. Maybe we need tax policies aimed at rewarding R&D or capital investment, rather than dividend payouts and buybacks. Regardless of how we do it, one thing looks certain to me: Our economy would be much better off if we had more engineers like my dad working on Main Street — and fewer financial ones running amok on Wall Street!

How about you? Do you think financial engineering is a necessary evil? Or not an evil at all? Should companies be investing more in plant, property, equipment, and labor … or is the “shareholder first” approach ultimately a better one? Let me know here.

Our Readers Speak

Is the job market improving? That’s an incredibly important question we all have to revisit each month when we get the latest figures from the Labor Department. But suffice it to say, many of you commenting on the blog aren’t buying Washington’s sanguine story.

Reader Howard said: “What’s missing is that we have more people not working today than ever in our history. They can play with the numbers to make it look rosy as the elections come closer. The jobs that were created are low income jobs; not what Middle Americans need to grow. Family income is lower for Middle Americans as well.”

Reader Mike chimed in as well, saying: “The underlying data of the jobs report sucks. Labor participation rate drops to the lowest in 36 years … 4 out of 5 jobs created are minimum or low wage … 230k jobs created were for 55 to 69 year-old grandparents … No job growth for 25 to 54 year-olds … wage growth flat … lower hours worked.

“Unfortunately, the CNBC talking heads drooling over the headline numbers as usual really does not change the fact that the U.S. has significant structural problems.”

Finally, Reader Dick said: “I no longer trust government reports. Inflation reports are not accurate because they keep changing what they cover. Employment figures are no good because of seasonal & life/death calculations. Total employment does not agree with government job creation numbers that even leave out those no longer looking for work. Of course employment numbers look good as we have a Nov. 4 election coming.”

Talk about a skeptical bunch! I’ll just repeat what I’ve said over and over here and elsewhere. Conditions are better than they were in the Great Recession, which means “crisis-era” monetary policy makes absolutely no sense anymore. But they’re not as good as they should be thanks to poor monetary and fiscal policy across the board.

As for monetary policy, Reader J.P.F. had some interesting comments: “As a 63-year old retiree with a balanced 60/40 stock/ bond portfolio, it is time for the Fed to allow the market to raise interest rates. End the QE as planned to sop up the excess liquidity and allow the market to seek its own level.

“It may go up, it may go down, it may stay the same. I would prefer that borrowing rates rise, as it would also tend to raise interest rates on the borrowed money. It is a supply demand thing. I do not plan to borrow money, I plan to lend some, at free market rates to well qualified borrowers. Sub-prime need not apply. Money will remain cheap enough.”

Amen, JPF! The Fed has far outstayed its welcome, and it’s time for them to ride off into the sunset! Let America get back to business lending and borrowing money at realistic, market-determined rates that accurately account for potential risks and rewards.

• The pro-democracy protests in Hong Kong are calming down a bit after a week and a half of increasing chaos. Demonstrators say they managed to force government officials to the bargaining table over the structure of the 2017 elections. But it doesn’t look like Chinese or Hong Kong officials are poised to give much ground. So renewed protests could break out at any time.

•Texas Ebola patient Thomas Eric Duncanis reportedly doing poorly, breathing only with the assistance of a ventilator. So far none of the people he came in contact with are showing signs of the deadly disease, but they aren’t out of the woods yet given the virus’ lengthy, 21-day incubation period.

• Will the Federal Reserve start hiking interest rates sooner? Or later? You know I’m firmly in the “sooner” camp, which also happens to be the view of the $4.3 trillion money management firm BlackRock (BLK, Weiss Ratings: A-). But Goldman Sachs (GS, Weiss Ratings: B+) has the opposite view. Talk about an economist battle royale!

Until next time,

Mike Larson

P.S. By now, I’m guessing you have learned quite a bit about Martin’s Ultimate Portfolio — the investing strategy he built from the ground up to help you grow wealthier in these uncertain times. If you join now, you risk nothing! You must be thrilled with the money you make or you can cancel at anytime in the next 365 days!

But remember: Time is running out. Your introductory savings expire at the end of this week. Click this link for the facts and join me while you can still save up to $2,603!

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{32 comments }

Rudy LozanoMonday, October 6, 2014 at 5:35 pm

I think we should reward both the companies and the Stock holders.
Give the companies 40% to %0% of the money based on new plant, property, labor and equipment in the form of tax breaks on the plant, property and equipment and salary increases to those living below the poverty level so the government can save on food stamps and insurance assistance. Distribute the other 60% to the middle class.
Those below the poverty level will spend every penny that they make which will help the economy. Both classes will also help keep Social Security safe without having to increase the percent that will otherwise have to be applied to keep social security in the black. With the Baby Boomers retiring, the money that they are making must be made up with additional taxes or reducing Social Security benefits.

mikeMonday, October 6, 2014 at 6:00 pm

like 0bama most of these ceo’s could not lead a rabbit to eat a carrot or get a yard dog to come in the house to take a sh-t. without financial engineering,wall street kronyism, and the Bernache put you ever wonder what the real corporate profit whould be?

SteveMonday, October 6, 2014 at 6:10 pm

In my opinion, what is going on around us is all part of an elaborate scheme for the FED to exit the markets. Create a bit of panic and money will flow to US Treasuries and who is the largest holder of Treasuries? Yes the FED. I think Gold and commodities are down, stocks under pressure etc leaves nowhere to hide other than US Government debt. I do think the FED will allow a saw tooth like panic to entail until such time is their Treasury load is lightened and then a final euphoric rise in stocks will be the last hurrah. It is all connected, you just have to see the crumb trail.

BACMonday, October 6, 2014 at 6:36 pm

The majority of Americans are missing the point—- since the death of communism/socialism in 1990 we have $3 Billion people who have entered the free enterprise market. The continuous myopia of the U.S. being the focus of the world economy is now over ! (we are but 10%). The next 50 years will be centered around raising the standard of living around the rest of the world.
If you stop to think about the definition of money (representing all goods, services and hard assets) and the huge GDP growth outside the U.S. then you will understand why the printing of dollars is necessary, as the world reserve currency, to provide the exchange liquidity for the massive increase in yuan, rubles, yen, rupis, etc.

Saranjeet SidhuMonday, October 6, 2014 at 6:43 pm

Hi Mike, I am writing in with regards to your comments on HP and financial engineering. I believe it horses for causes and splitting up businesses in some circumstaneces can be good. Going back a couple of decades there was Imperial Chemical Industries in the UK. It comprised of a several heavy end commodity chemicals businesses, paint and a pharma/cropcare business. It was split and today the pharma business is Astra/Zenecca, whilst the heavy chemicals/paint business does not exist any more. The latter got destroyed due to incompetent leadership, which made a bad acquistion. In fact with the benfit of hind sight, if they had split the paint business from the heavy chemicals business, the paint business could be a world leader today. Hence if HP are splitting their business due to diffirent approaches required for the two parts it might be worth sonsidering the split, with one proviso, you need to ensure that the leadership for each component is approriate and wolrld class, this could well lead to two world class businesses. Otherwise, from my observation, one will survive and succeed whilst the othe fails.

JohnMonday, October 6, 2014 at 9:50 pm

REPLY – Yes but the current HP plan is to have Meg Whitman remain as the CEO of one unit (high end) but stay on as chair of the board on the other. (and talk about conflict of interest…) So you’re not getting fresh and dedicated leadership out of the split of HP as is in the works now.

As for Imperial Chemical Industries (ICI)- that’s a great industry (chemicals) and ICI WAS a truly great company. They died out for no reason other than mismanagement. There are plenty of highly successful companies in that business today – but even if they found they had greener pastures elsewhere (such as in Astra-Zeneca), they could have just refocused their business (as opposed to spinning off part and letting shareholders get stuck holding the bag on the losing half). Wholesale change of what a company does in fact happens, and it can be ok.

Do any of you remember the American industrial giant Westinghouse? Well a while back when CBS (television) was in financial trouble Westinghouse swooped in and bought them up. But rather than run CBS as a unit, Westinghouse – flush with cash at the time – “became” CBS, and even dropped the Westinghouse name to transition into the media business. They “turned into” CBS. If Westinghouse had not come to the rescue with their deep pockets CBS might no longer even exist. But for the shareholders of Westinghouse it doesn’t seem too bad either because a lot of the types of industrial products they once made (including household appliances) have been commoditized and are no longer as profitable as they used to be. So “becoming” something else isn’t necessarily a bad move for anyone, including shareholders.

Duane MyersMonday, October 6, 2014 at 7:40 pm

There is way too much financial engineering going on period – at the corporate level and government / social engineering level. The middle class or the majority populace is what truly drives profits and prosperity nationwide. You have to have a lot of empowered consumers. True engineering of materials and things creates wealth and there is too little of that going on. You can play with the money all you want, but if most people aren’t hired to make anything productive we’ll all eventually starve to death. And forget about trickle down theories. Bottom line: too much greed and manipulation by those in high places is killing us all.

Philip WeismanMonday, October 6, 2014 at 7:48 pm

One way to combine both would be to have the employees of the company be the shareholders; then all the investment in buybacks and dividends would go to the employees. In addition, their ideas would be listened to as shareholders, so money could then be invested in more and better items for the business. The cycle would complete itself as money money earned would then flow back to the shareholders (employees), and begin again.

Chuck BurtonMonday, October 6, 2014 at 7:54 pm

Let us say a company buys back 10% of its stock. Does the stock price rise by 10%? Probably not for that reason, or within a reasonable period. Does the company raise its dividend (if any) by 10%? Probably not. On the other hand, that stock doesn’t disappear – it is held by the company, and may be used in a stock option plan to benefit officers and key employees, or to buy some other company. Buybacks seem to benefit the company more than they do the stockholders.

David J TanMonday, October 6, 2014 at 7:55 pm

Hi Mike,

BUY LOW, SELL HIGH is a wonderful strategy that most people knows it but still gets it wrong!

MAXIMIZE profitability during boom time. And GROW, reorganize, invest and build up your strength during recession. This is by far the cheapest and most stable way to grow your company with each economic cycle.

A well run company should build up profitability, margins and cash flow during boom time so that it can weather, reduce price and invest during recession.

Most company and people may have a hint of this strategy, but human nature still gets it wrong! Why? Greed and selfishness are the two major stumbling block.

As we know, BIG is not necessary beautiful. GROWTH for growth sake may not bring in the intended benefit.

FINANCIAL ENGINEERING: The following two financial engineering strategies that you mentioned are good provided you have extra cash and are generating healthy profit:

1. SPLIT: Split the company’s various business to realize it’s true value and it will also give each smaller companies autonomous authority to concentrate on their area of specialty. One stone kills two birds! It’s a wonderful move!

2. BUY BACK: Buy back to enhance value or distribute the profit to shareholders when you have the cashflow and profit to do so is also very good strategies when economy is growing strong. As I said, it’s not wise to expand during boom time.

CONCLUSION: GREED (love of money, power and fame) and SELFISHNESS (love of self rather than God and neighbors) are the stumbling blocks that causes a country, company or individual to fall. It has proven time and again to destroyed civilizations and it will ultimately also destroy the world we live in. We are living in the edge of destroying ourselves, time is no more….. but there is good news. ??? You don’t have to follow the world and goes down with it. There is a way out.

Chuck BurtonMonday, October 6, 2014 at 8:15 pm

By the way, read Martin’s commentary about how ISIS continues to take over territory and murder those it considers infidels despite the air campaign against them. ISIS boots on the ground seem a LOT more effective than bombs from the sky!

anthony gMonday, October 6, 2014 at 8:28 pm

The central Bank’s lowering of the interest rate creates a mismatch of market forces.The coordination of production across time is disrupted. The economy is being stretched in two directions at once and resources are being misallocated into lines that cannot be sustained long term.

JohnMonday, October 6, 2014 at 8:53 pm

Mike – I agree with your overall drift here – there is something wimpy about the idea of splitting the company – unless there is a really good reason, and in the case of HP – I don’t see one. I don’t see it with EBAY/Pay Pal either. PayPal is not going to take on credit giants Visa and MasterCard successfully (and Visa is already moving on the response at this time). Pay Pal is just a good unit that makes money for shareholders at EBAY.

But the idea of shareholder first – what does that mean? Isn’t the best thing a company can do with capital is expand its business and make it even more successful that it’s been in the past? To me that IS putting shareholders interests first. And it’s especially true if companies can gain critical advantages such as economies of scale or strategic position that turbo-charges profits even beyond just getting bigger. So yes I agree with your lament that corporations seem to lately to lack imagination, gumption or both.

BUT – while I have no problem with dividend payments (it’s shareholders cash – so why not give it to them) I am not a fan of stock buybacks that companies are funneling most of their profits into. This is my least favorite of the three things companies can do with investor cash (growth, dividends and buybacks) because stock buybacks ONLY make sense if the stock price is low – and a good deal of the time when companies do stock buybacks the price is NOT low – it is high. BUT don’t tell any company CEO that because no matter how absurdly high the stock price of his (or her) company is – they always think it’s undervalued.

Look no further than YAHOO founder and CEO Jerry Yang – he turned down a buy offer from Microsoft because he though it wasn’t rich enough. But YHOO was at a high point, and probably not worth anything like what the stock price was at that time – and Yahoo shareholders have been gnashing their teeth ever since (as well as having deposed Yang as CEO). The same thing with Netflix (NFLX). Their stock price was going to the moon – back in 2011 – totally unsupported by earnings (I might add). Yet CEO Reed Hastings poured enormous amounts of cash into buybacks – at a stock price that anyone could tell by the simplest of means was “anything but low”. But did that result in a higher price for NFLX shareholdedsr? Of course not – and when Netflix’s ran into business reversals their stock price crashed (2011-12) and worse yet -they started to run out of capital. So what does CEO Reed Hastings do to “solve” this problem?” He sells new shares of stock at a pittance compared to what he bought them back for less than a year before. Talk about mis- management!

And that’s not all. My observations of stock price changes after buybacks do not show a clear correlation between the share quantity reduction and increased stock price that stock buybacks purportedly do for shareholders who remain. In fact the market mostly tends to show no clear awareness of the buybacks at all and most of the time they remain anchored on the stock price – indifferent to P/E or EPS or other per share measures that change because of buybacks. Wall St. “guru’s” have long held that investors “buy the P/E” (Jim Cramer harps on this all the time) and that’s what creates the stock price of the day. However I do not see any substantiation for that concept the majority of the time which suggests that factors other than the buyback are important in stock valuation and the part buybacks play is often not clear -and perhaps often non-existent.

So my view of stock buybacks is that may be a good idea IF – and I mean IF the company can buy share back at the “right price” (aka – a low price). But otherwise it seems to me a great way to torch the capital the firm has worked so hard to accumulate. And of course the absence of that money has an influence on the stock price too – it puts down pressure on stock price once the bank accounts lighten up because it alters the balance sheet. When companies pay dividends the stock price is atomically adjusted down to account for the removal of capital. Lower stock price after buybacks isn’t “ordained” by Wall St. rules (in part because nobody knows exactly when buybacks on the open market is done) but the absence of money in the bank reduces cash assets just like a dividend payment and can yield a similar result.

So Mike I agree with you – it’s not that often that deals like this proposed HP split really benefit the shareholders. They probably do the CEO (my big bonus) the investment bankers (money rains down in fees) and the financial journalists (news fodder for the press) a whole lot more good that the rank and file shareholders of the company.

But more than anything else – it shows that HP’s well of ideas is run dry. They’re doing this because they don’t know what else to do. Considering the explosion in technology we’ve been in this decade I can’t see any excuse for not being able to make money in the technology industry. I think this inability to find “good ways to spend cash on growth” has more to do with lack of imagination in the C-suite that the absence of opportunities.

John

JohnMonday, October 6, 2014 at 9:08 pm

ONE MORE THING on Netflix: Some of you may have noticed that NFLX stock has skyrocketed up to $450 / share lately – but before you exclaim that ” they were worth a lot after all” – consider that today’s price is based on a P/E ratio of 138. That number is ridiculous – suggesting they are in a bubble. Compare that to the avg. of the S&P 500 is around 17 at this time, and you’ll see that NFLX is clearly overvalued at today’s price – and buy a lot. (Remember that means you have to pay $138 of your hard earned money to get a claim on $1 of earnings at NFLX – when you can pay $17 of your hard earned money for a claim against $1 of earnings on any average company in the S&P 500, or even in the ETF – SPY which is easy to locate)

So if you do what analysts do (the smart ones, that is) you break out your pencil and adjust that P/E to where it belongs – perhaps at 25 or so to see what their actual earnings could support in the way of stock price. And when you do you’ll realize that NFLX is probably really only worth around $81/share – based on earnings. (the math: 450 / (138/25) = 81)

Don’t buy companies with a P/E of 138. Unless there is a very good – and temporary reason for low earnings – they are just a bubble waiting to burst. Unfortunately in Netflix’s case earnings are low because the company does not make very much money doing what they do; and that is not the reason I was looking for.

John

Alice MaxwellMonday, October 6, 2014 at 9:29 pm

Company buybacks will continue to explode as[rivate enterprise seeks to protect itself from confiscation under ERISA, the 1974 federal law which sought to insure the pension plans of companies facing obsolescence, going bankrupt then., This legislation made every company in the USA subject to take over by the feds if their stock price fell below a minimum set by the feds. This was all considered moot until the takeover of GM which was accomplished through ERISA, wiping out stockholders et al.

There is another inducement to buy back stock. With the NYSE being sold to the gambling synidicates after its gentlemen’s club fell victim to post war manipulation of “investments”, and the introduction of electronic trading,worldwide, no company knows how many shares are being sold in its name, who is leveraging their assets, so they are now buying back their stock. You don’t get paid without the certificates so they are getting back what is legal ownership while the vast market still plays with the cloud of fraud!

There are no real investments to be had today.It is all smoke and mirrors and you are just playing roulette!

Regards, Alice Maxwell

TonyMonday, October 6, 2014 at 10:33 pm

As long as our government makes financial shell games profitable (and perhaps necessry), they will continue to occur.

WilliamMonday, October 6, 2014 at 11:45 pm

In my opinion, much of this financial engineering is due to the zero interest policies of the Fed.
Banks,
Hedge funds, and favored big corporations can buy up dividend or rent paying real assets at very low or almost zero interest. Thus an ever larger portion of our nations capital wealth is falling into the hands of such financial engineers. This cannot end well if interest rates rise and the dividends being generated cannot cover the interest payments. There will be pleas for a massive bailout at taxpayer expense

Sailor JoTuesday, October 7, 2014 at 1:10 am

The British have always been mercantilistic and brought their attitudes with them and the US inherited more from Britain than from any other countries. That;s why I do not buy British products except for a few items. That aversion continues when looking at US products.
As a person with a social mind set I do not mind paying taxes. Helping others is fine if they are not abusers. For some strange reason the US seems to be full of abusers. Still, I believe all income should be treated as equal, no matter what the source is. Besides, when I had a low income I had help that was possible because other earners paid into the system. When I had I higher income it was just pay-back time.

HP was once a great company with great products. The culture of publicly traded companies with CEOs looking for power and disregard for products and companies led to a quarterly show for the media. The media disect every stupid number but barely ever look at the products and how well they serve society. It is all about the money and not about humans and humanity. HP is a victim of this circus and many more companies will follow that path.

edwardTuesday, October 7, 2014 at 1:53 am

The job market in the US is horrific. Take me as an example. Been looking for a halfway decent job since 2007. Thousands of applications, numerous Job Fairs, Phone Interviews, Face-To-Face Interviews, Networking, Marketing Plan Submissions, 11-hour-a-day search. Over-Qualified. Why would you want this job since you’re used to making six-figures? Graduated with Honors from Ivy League School. Great References, Loyal (Only worked for 2 companies in 24 years). Bottom line – if you’re White, Male, Over 45 with a spectacular education and work history you are not going to get a job. Under 40, Female, Minority w/halfway decent credentials and you have a pretty good chance of grabbing the brass ring. Also – why is it that Federal Government employees get paid twice what the same job in the private sector pays with 3 months of vacation and sick time. My brother works for the VA makes $250,000 and works 9-months. Do we have a problem here. Corporate America sucks. I have my own Internet business and am trying to launch a consulting business. I’ll be my own boss. I just can’t waste any more time. And – whoever said the private sector jobs are crap is right. Low wage jobs – wanna work at 7-Eleven with your Ivy degree? Worst I’ve seen it in my 55 years. Pay me a crap salary and give me 6-months and I’ll show you performance. I’ll make your company more money than and goal you set for me. I am worth every penny that you’ll have to pay me then. Not being cocky, just based on past work history. Successfully managed 3/4ths of a billion for one of Wall Street’s largest firms. Retained and grew assets in the Institutional Market. Anyone interested. E-mail me.

David J TanMonday, October 13, 2014 at 11:29 am

Hi Edward,

Please send me an e-mail.

YVON SHERIDANTuesday, October 7, 2014 at 6:19 am

Dear Mike,
Sorry to say that but why you peoples always ask “yes or no”, “bad or good” “left or right” ,”up or down”. What happened to good old “What would you like to see happen” I could never answer yes or no to almost nothing. There is good and bad to everything.

In this case, I would answer raise the dividends and execute some buy-backs and distribute a part to the workers.

In this case everybody Is happy and it makes good managerial skill.

I enjoy very much your articles.

Yvon Sheridan, Author and Consultant
“CONVERTIBLE BONDS (DEMYSTIFIED)

JohnTuesday, October 7, 2014 at 8:01 am

I’ve yet to find a company that is in business to create jobs. That is a cause and effect of their success, not their stated or intended goal. Given that, money is put to work where it will provide the best return based on future projections, tax consequences, etc. If there were a great economy just over the horizon, why wouldn’t one be taking on the cheapest debt we’ve seen in decades to build out for that coming boom? Follow the money, if it aint moving, that should say something to us all. Don’t expect much economic growth for some time. As a COUNTRY we’ve chosen leadership that decided the best investment going was bigger government, now chewing up the majority of CHEAP money to fund itself. And what does it sell? When rates do reverse direction, that decision won’t look so wise. Good jobs come with good & less policy, not more of the same. The biggest failure in the US, trusting in government answers and corporate boards.

BobTuesday, October 7, 2014 at 10:55 am

Interesting how few people can stay on point. The question was about the financial engineering. Let’s remember who owns the company–the shareholders. They should be a considerable driving force, they only own shares to make money. The management will attempt to do that while accopmlishing other goals. Growing the company should be primary, but it seems it is not. Regarding dividend distribution, if dividends were taxed more closely to regular income, they would be of less value to stockholders and thus the companies would feel less pressure to distribute large amounts at the expense of company growth. It would also make the income to the very wealthy taxed more in line with middle-income workers. I am NOT a proponent of increasing taxes in general, but this is one tax that is inappropriately low. Increasing dividend taxes to a middle income tax rate will ‘fix’ a great deal of the financial gaming being done by US companies.

LorneTuesday, October 7, 2014 at 11:00 am

Re: Shouldn’t they be paying their workers more….
Today’s CEO’s could learn from H. Ford who increased the salary of his workers dramatically ” so that they could afford to buy the cars that they produced … ”
Though his real reason was to reduce the high turnover he was experiencing, the fact remains that it worked.
If CEO’s raised wages to a decent level, the economy would improve even more and they
in turn would continue to enrich themselves in a virtuous circle that would ” lift all boats “.
Seems like a no-brainer to me; but then again, are they really all that bright?

J.Jim HolmesTuesday, October 7, 2014 at 12:50 pm

The answer to financial engineering problem started with the central bank and ends there. When the Federal Reserve act was passed into law a 100+ years ago the citizens owned the country’s wealth in the form of gold certificates as money, now the citizens money is fiat backed by debt. The Federal Reserve is world bankers on the mission to destroy our free system that give the country’s wealth to its productive citizens, in favor of a system of one world government, with a few in control of the wealth and power of the world. The truth is to much for people to take as they have had 100+ years of brainwashing.

BACTuesday, October 7, 2014 at 1:49 pm

There will be no major increase in rates for the next 10 years—period. The U.S. economy would crash like a lead balloon. There will be head fakes, jawboning and occasional fake runs but the Federal government is the largest debtor and any increase in the financing costs of their debt will be impossible to absorb via higher tax revenues.
As Greenspan noted in his AGE OF TURBULENCE it is all about creating a new equilibrium in world economics as the 1 billion people who average $25/hr incomes and the new 3 billion people average $1/hr income converge in the world free enterprise economy. Inflation will just spike in very few areas and for just short time frames as new supplies will be rushed to the market (i.e energy via LNG). The ultimate result in 50 years will be a much more homogeneous world economy with incomes and standards of living in a much toghter range top to bottom.

ianTuesday, October 7, 2014 at 4:13 pm

BAC, Your just like dad ,he told me ghost stories,scared the crap out of me

InsightTuesday, October 7, 2014 at 8:02 pm

Passing tax laws that are designed to encourage or discourage a certain action or behavior is the worst type of financial engineering. The only change we need to our tax laws is to scrap the entire system. Companies should be allowed to do as they wish with their capital. If they are profitable they will prosper and grow. If not, they will shrivel and die. Businesses are not designed to be benevolent enterprises to provide jobs for the community or to fund projects that politicians deem beneficial for the vast majority. Telling the various companies how best to use their capital would make us the financial engineers. Who’s John Galt?

Bill MacyWednesday, October 8, 2014 at 11:59 pm

Add to your list: research and development, without government subsidies.

Unsubscribe me!Thursday, October 9, 2014 at 2:41 pm

‘not interested in lengthy reports!

elizabeth wesleySunday, October 12, 2014 at 10:01 am

Robots and the massive immigration doesn’t help the job market either. With 40% of Americans on food stamps, it makes one wonder if leadership’s heads are stuffed with cotton.